Multilevel Entrepreneurship Research: Opportunities for Studying Entrepreneurial Decision Making

Transcription

1 Special Issue: Bridging Micro and Macro Domains Invited Editorial Journal of Management Vol. 37 No. 2, March DOI: / The Author(s) 2011 Reprints and permission: sagepub.com/journalspermissions.nav Multilevel Entrepreneurship Research: Opportunities for Studying Entrepreneurial Decision Making Dean A. Shepherd Indiana University Entrepreneurship is a domain of research that can be investigated from different disciplines, functions, and contexts. As a result, there are ample opportunities for multilevel research. In this article, the author acknowledges a foundation of multilevel research on decision making in the entrepreneurial context and explores future research opportunities to build on it. This exploration is organized conceptually as a hierarchy of levels below and above that of the individual, and the author uses conjoint analysis as a methodological framework to keep these ideas anchored in what is empirically possible. Specifically, this article explores (a) multilevel research on decisions to explain how a sample of individuals makes a decision on an entrepreneurial task, (b) additional possibilities for cross-level research that explains variance in decision policies based on individual differences, and (c) research opportunities that bridge the levels of the decision, the individuals, and the contexts in which they are embedded. The hope is that this article stimulates multilevel research on entrepreneurial decision making and other multilevel and cross-level issues in the entrepreneurship domain. Keywords: entrepreneurship; multilevel; conjoint analysis; judgment; opportunity I am honored by the guest editors request for my thoughts on multilevel research in the entrepreneurship domain. Given the multidisciplinary, multifunctional, and multicontextual nature of entrepreneurship research, there are ample opportunities for multilevel research. Rather than attempt to map out the domain of all possible opportunities, I focus on decision Corresponding author: Dean A. Shepherd, Kelley School of Business, Indiana University, 1309 East Tenth Street, Bloomington, IN shepherd@indiana.edu 412

2 Shepherd / Multilevel Entrepreneurship Research 413 making in the entrepreneurial context. I chose this focus because a number of studies have started to explore multilevel issues, and these provide a foundation upon which future research can build. Furthermore, because I believe in the potential of this research stream, I have worked in this area myself. The invitation for this article provides the opportunity to reflect on previous work and think about the future. I organize these reflections and suggestions for future research conceptually as a hierarchy of levels below and above that of the individual, and I use conjoint analysis as a methodological framework to keep these ideas anchored in what is empirically possible. First, I explore multilevel research on decisions to explain how a sample of individuals makes a decision on an entrepreneurial task (i.e., the weights given to the specific criteria of a decision or assessment). Second, I explore additional possibilities for cross-level research that explains variance in decision policies based on individual differences. Third, and consistent with the notion of interactions across three levels of analysis, I explore research opportunities that bridge the levels of the decision, the individuals, and the contexts in which they are embedded. Finally, I explore the potential impact of different situational contexts in explaining within-individual (intraindividual) differences in decision policies. Common Decision Policy The purpose of this article is to build on multilevel decision-making studies in the entrepreneurial context to offer some possibilities for future research. Most these studies are based on conjoint analysis, which requires respondents to make a series of judgments based on profiles from which their captured decision processes can be decomposed into its underlying structure (Shepherd & Zacharakis, 1997). Common forms of conjoint analysis include metric conjoint analysis and policy capturing (for a review of the types of conjoint analysis, see Priem & Harrison, 1994). 1 By design, conjoint analysis requires each individual of the sample to make a series of decisions. Analysis of the data must recognize that these decisions are not independent of one another across the sample as a whole. For example, a recent study (Mitchell & Shepherd, 2010) investigated 1,936 decisions about hypothetical entrepreneurial opportunities made by 121 executives of high-tech firms (16 decisions were made by each executive). Random coefficient modeling (e.g., hierarchical linear modeling software package) provides the opportunity to empirically determine which criteria are significantly used in the decisions on an entrepreneurial task. That is, by accounting for variance between individuals, entrepreneurship scholars can theorize and test a decision policy for the sample (i.e., commonality across the decision policies of the individuals that make up the sample). For example, Choi and Shepherd (2004) investigated entrepreneurs whose businesses were located in incubators and found the following: First, entrepreneurs were more likely to exploit opportunities when they perceived more knowledge of customer demand for the new product, more fully developed necessary technologies, greater managerial capability, and greater stakeholder support; second, the longer the new product s anticipated lead time, the more positive these relationships were. There are ample opportunities for future research to focus on common decision policies in the entrepreneurial context. Such studies could focus on entrepreneurs decision policies

3 414 Journal of Management / March 2011 toward the different nascent activities that lead to firm emergence, the hiring of key personnel, the selection of venture capitalists and/or other stakeholders, the targeting of early adopters, and strategies for building reputation. Studies could also build on the corporate entrepreneurship and organization literatures to gain a deeper understanding of the decision policy of internal entrepreneurs. For example, future research could theorize and empirically investigate how organizational members assess the corporate environment in determining their commitment to entrepreneurial initiatives, how team members assess product champions and exit champions, and how product champions assess mentors within the firm (and vice versa). Despite a considerable body of literature on the decision making of venture capitalists (e.g., Muzyka, Birley, & Leleux, 1996; Shepherd, 1999; Zacharakis & Meyer, 2000), there are opportunities for future entrepreneurship research to focus on the decision making of other individuals who are involved in, or affected by, the entrepreneurial process. For example, how do managers assess the entrepreneurial actions of their alliance partners? How do employees assess the challenges faced by their firms rapid growth? And what do entrepreneurs spouses think about the entrepreneurs work life balance? Although this represents the simplest form of multilevel research controlling for one level (individual differences) while investigating another (the decision) this leads to the first research opportunity. Research Opportunity 1: Bridging Decisions to a Decision Policy A deeper understanding of entrepreneurial phenomena will come from investigating the different decisions that are inputs to, or outcomes of, the entrepreneurial process that explain commonality among a group of individuals. Individual Differences in Decision Policy Although there may be commonality in decision policies across individuals of a sample, there is likely to be variance. That is, there is likely variance across individuals in their weighting of criteria when making decisions on an entrepreneurial task. Research has begun to theorize on individual differences to explain variance in decision policies. For example, DeTienne, Shepherd, and DeCastro (2008) built on escalation of commitment theory and the motivation literature to explain variance in entrepreneurs decision policies for persisting with a poorly performing firm. The theoretical model first hypothesized a common decision policy, then hypothesized the moderating role of an individual s extrinsic motivation on that decision policy. The study found that extrinsic motivation moderates the negative relationships between dynamism and persistence, between complexity and persistence, and between personal opportunities and persistence entrepreneurs with high extrinsic motivation put less weight on these criteria in making their persistence decision than did those with low extrinsic motivation. Extrinsic motivation also moderates the positive relationship between personal sunk costs and persistence that is, entrepreneurs with high extrinsic motivation put more

4 Shepherd / Multilevel Entrepreneurship Research 415 weight on this criterion in making their persistence decisions than did those with low extrinsic motivation. The theoretical and empirical investigation of individual differences in decision policies provides some interesting avenues for future research. First, future research could use existing conjoint studies that capture the decision policy of the individuals engaged in an entrepreneurial task and so focus theory, hypotheses, and analysis on explaining variance in decision policies across individuals. The advantage is that the importance of a decision policy (theoretically and empirically) has already been established, allowing future research to delve deeper into the decision by investigating why some individuals are likely to weight particular criteria more or less heavily. For example, the following moderators may help to explain variance in decision policies to exploit an opportunity: attitudes toward the different errors arising from making decisions in environments of high uncertainty, as informed by regret theory (Zeelenberg, 1999) and/or norm theory (Zeelenberg, van Dijk, van den Bos, & Pieters, 2002); the level of positive affect, negative affect, and the combination of the two, as informed by the psychology literature on emotion and cognition (Izard, 2009); the intrinsic motivation to act, as informed by self-determination theory (Deci & Ryan, 2000; Ryan & Deci, 2000); the level of prior knowledge, as informed by the Austrian economics (Shane, 2000), opportunity recognition (Baron & Ensley, 2006; Grégoire, Barr, & Shepherd, 2010), or entrepreneurial action (McMullen & Shepherd, 2006) literatures; beliefs about the way that the world works, the nature of people, and oneself, as informed by the values (Schwartz, 1994), resilience (Bonanno, 2004; Sutcliffe & Vogus, 2003), and identity (Brewer, 1991; Tajfel & Turner, 1979) literatures; and connections with the business and social communities, as informed by the social network (Granovetter, 1985) and social capital (Walker, Kogut, & Shan, 1997) literatures. Furthermore, building on entrepreneurship research on the impact of gender (Brush, Carter, Gatewood, Greene, & Hart, 2006), future studies might reveal that gender helps to explain differences in decision policies. The moderator could also be reflected by theoretically sampling groups and by theorizing differences between the groups in their decision policies. For example, Zacharakis, McMullen, and Shepherd (2007) theorized that institutional differences would lead to differences in venture capitalists assessments of entrepreneurial firms. The study captured the decision policies of 119 venture capitalists across three countries, representing distinct economic institutions: United States, mature market economy; South Korea, emerging economy; and China, transitional economy. They found that venture capitalists in rules-based market economies rely on market information to a greater extent than do venture capitalists in emerging economies and that Chinese venture capitalists more heavily weight human capital factors than do either U.S. or Korean venture capitalists. Other contrasts between groups in their decision policies could include groups of entrepreneurs and venture capitalists; entrepreneurs from the United States and those from China, India, and Sweden; entrepreneurs of highand low-tech companies; and groups across stakeholders. Second, future research could build on the individual-difference constructs already shown to influence decisions in the entrepreneurial context to investigate variance in decisions not

5 416 Journal of Management / March 2011 yet explored. For example, extrinsic motivation has been used to explain variance in entrepreneurs persistence with a poorly performing firm (DeTienne et al., 2008), human capital to explain variance in the decision to allocate small business loans (Bruns, Holland, Shepherd, & Wiklund, 2008), and fear of failure to explain variance in opportunity assessment policies (Mitchell & Shepherd, 2010). Perhaps extrinsic motivation, human capital, and fear of failure are individual-difference variables that are important moderators (depending on theory) in explaining other decisions of the entrepreneurial process (such as those listed in the previous section). Again, using established decision policy moderators provides the opportunity for accumulation of knowledge across the different decisions of the entrepreneurial process. For example, studies that independently investigate the moderating role of human capital on the decision to pursue an opportunity, on nascent activities toward creating a firm, on strategies for growing a firm, and on terminating a poorly performing firm provide a deeper understanding of the role of human capital across different tasks of the entrepreneurial process. Finally, there are opportunities to combine the above that is, to investigate decisions for entrepreneurial tasks not yet explored and to explain variance in those decision policies using moderators not yet explored. Research Opportunity 2: Bridging Decisions to Variance in Decision Policies A deeper understanding of entrepreneurial phenomena will come from investigating individual differences (knowledge, motivation, resources, roles, theoretically defined groups, etc.) to explain variance in the decision policies on an entrepreneurial task. Decisions of Individuals Within Contexts The previous section highlights a multilevel and cross-level model of individual differences explaining variance in decisions. However, individuals may also be embedded in specific contexts (e.g., entrepreneurs in countries such as the United States, China, India, and Sweden). Within each group there is likely to be individual differences that help to explain variance in decisions (e.g., entrepreneurial experience). Conceptualizing an entrepreneurial task at three levels e.g., decisions (Level 1), experience (Level 2), and country (Level 3) provides for potentially interesting research questions. To continue with the above example, the researcher can investigate the following relationships over and above a common decision policy for the sample as a whole and over and above individual differences within that sample. First, to what extent does the nationality of the entrepreneur explain variance in entrepreneurs decision policies? Institutional theory (North, 2005) or the literature on national cultures (Hofstede, 1980) may lead us to expect that entrepreneurs from specific countries weight the criteria for assessing an opportunity differently to those entrepreneurs from different countries. For example, perhaps weak legal protection of intellectual property in China means that Chinese entrepreneurs place less emphasis on gaining a patent than do entrepreneurs from the United Kingdom (where intellectual property protection is strong). Perhaps entrepreneurs from more risk-avoidance cultures place greater weight on potential downside loss (the costs

6 Shepherd / Multilevel Entrepreneurship Research 417 of being wrong), whereas entrepreneurs from less risk-avoidance cultures place greater weight on the potential upside of an opportunity (the benefits of being right). These relationships could be tested controlling for individual differences such as experience. Second, this three-level model can use nationality to explain variance in how entrepreneurial experience influences the decision policy. For example, on an entrepreneurial task, perhaps more experienced entrepreneurs place greater emphasis on competition in assessing the attractiveness of an opportunity than do less experienced entrepreneurs but more so for entrepreneurs from less regulated economies. This represents a three-way interaction involving all three levels. Finally, nationality may also explain a general tendency for entrepreneurs to find opportunities more or less attractive over and above not only the information on each decision criterion but also the influences of entrepreneurial experience. Research Opportunity 3: Bridging Decisions to Decision Policies to Contexts A deeper understanding of entrepreneurial phenomena will come from investigating how the context in which the individual is embedded influences the decision policy for an entrepreneurial task and the nature of the relationship between individual differences and the decision policy for an entrepreneurial task. Within-Individual Variance The previous section highlights the possibilities of capturing the context in which an individual is embedded when making decisions on an entrepreneurial task. However, the same individual may face different situational contexts that influence his or her decision policy on an entrepreneurial task. Investigating situational contexts provides an opportunity to gain a deeper understanding of within-individual (i.e., intraindividual) variance. For example, the decision policy for determining the attractiveness of an opportunity might vary when the individual is in a promotion focus versus a prevention focus, a gain situation versus a loss situation, a positive emotional state versus a negative emotional state, high time pressure versus low time pressure, and so on. First, scholars can draw on substantial bodies of literature to build models of intraindividual differences in decision policies and construct valid situational contexts. In doing so, they are likely to make a substantial contribution to the entrepreneurship, management, and decision-making literatures by gaining a deeper understanding of the impact of situational context on decision making. For example, researchers have been able to manipulate the situation to prime a regulatory focus (Halamish, Liberman, Higgins, & Idson, 2008), emotion (Bradley & Lang, 1999), and feedback (Leung & Trotman, 2008). How do these situational contexts influence entrepreneurs decision policies? Second, there is an opportunity to consider the role of individual differences in explaining variance in how situational contexts influence decision policies. Although experience, knowledge, and motivation are likely candidates to help explain variance in the role of situational context on decision policies, there are ample opportunities to delve deeper into this aspect of decision making on entrepreneurial tasks. For example, perhaps the differences in the

7 418 Journal of Management / March 2011 decision policy of opportunity attractiveness across emotional state (high negative versus low negative) is not as great for those individuals high in emotional intelligence compared to those low in emotional intelligence. Perhaps differences in the decision policy to try again (exploit a subsequent opportunity) across feedback condition (previous opportunity success versus a failure) is not as great for those individuals who are highly resilient and/or have considerable coping skills versus those who are less resilient and/or have fewer coping skills. Finally, we can investigate the role of situational context on the general tendency on a specific decision over and above task-specific information (as it relates to decision criteria) and individual differences. For example, entrepreneurs may find opportunities more attractive when they are in a highly positive emotional state versus a less positive emotional state, holding constant the nature of the opportunity and individual differences. Research Opportunity 4: Bridging Decisions to Situations to Individual Differences A deeper understanding of entrepreneurial phenomena will come from investigating how the different situational contexts that an individual faces influence his or her decision policies on an entrepreneurial task and from investigating individual differences in how situational context influences the decision policy for an entrepreneurial task. Beyond Decision Making There are many opportunities for entrepreneurship scholars to bridge multiple levels of entrepreneurial phenomena. Above I focus exclusively on the topic of decision making and the conjoint method to indicate the scope of opportunities to bridge levels in entrepreneurship. Other high-potential topics include emotion (positive and/or negative), identity, and learning. To indicate the many possibilities, I focus briefly on emotion. How does the passion of the lead entrepreneur influence the passion of the management team, the organizational culture, and institutional investors (and vice versa)? How does an entrepreneur s negative emotional reaction to the termination of a project (e.g., grief) influence the project team s commitment to subsequent projects and the performance of the firm? Are some nations more emotionally capable than others? If so, how does this influence the emotional capability (and entrepreneurial actions) of their firms and the emotional intelligence of their citizens? Other high-potential methods that could extend our understanding of multilevel issues in entrepreneurship include experiments (other than conjoint), such as the recognition of opportunities across technologies within and across individuals (e.g., Grégoire, Shepherd, & Lambert, 2010); panels of new ventures within industries (e.g., Short, McKelvie, Ketchen, & Chandler, 2009) or products within firms; meta-analyses (e.g., Read, Song, & Smit, 2009); and case studies (e.g., Lichtenstein, Dooley, & Lumpkin, 2006). To extend the above example on the topic of emotion, multiple case studies could explore project teams (as cases) to compare and contrast their recovery from project failure. The cases could reflect multiple levels of analysis the individuals that make up the project team, the project team itself, the firm, and the firm s environment (over time). Such multiple-case studies are well situated to

8 Shepherd / Multilevel Entrepreneurship Research 419 understand the cross-level mechanisms that feed up and feed down the hierarchy, as well as the reciprocal relationships that perhaps create a cross-level spiral. Conclusion By conceptualizing decision making for entrepreneurial tasks in a hierarchical multilevel framework, I highlight some interesting avenues for future research. Conjoint analysis provides a tool to collect data consistent with the proposed research opportunities. By theorizing and testing cross-level models of decision making on entrepreneurial tasks, such studies can make a substantial contribution to the entrepreneurship literature. Furthermore, because entrepreneurial tasks are often extreme high levels of uncertainty, time pressure, stress, and emotions studies that exploit the above research opportunities can extend the boundaries of current theories and make contributions to the management, decision-making, and psychology literatures more generally. Whether it is decision-making research using conjoint analysis or another topic using a different method, there are numerous opportunities for multilevel research to make a substantial contribution to the field of entrepreneurship. Note 1. Metric conjoint analysis typically presents attributes at two discrete levels (high and low), sometimes three (high, medium, and low), whereas policy capturing typically presents points along a continuum. Metric conjoint analysis also uses an experimental design to determine the combination of attributes for each profile and the number of profiles, and it typically involves a complete replication of the original set of profiles. In contrast, policy capturing does not typically rely on an experimental design, and it replicates on a small number of the profiles. References Baron, R. A., & Ensley, M. D Opportunity recognition as the detection of meaningful patterns: Evidence from comparisons of novice and experienced entrepreneurs. Management Science, 52: Bonanno, G. A Loss, trauma, and human resilience: Have we underestimated the human capacity to thrive after extremely aversive events? American Psychologist, 59: Bradley, M. M., & Lang, P. J Fearfulness and affective evaluations of pictures. Motivation and Emotion, 23(1): Brewer, M. B The social self: On being the same and different at the same time. Personality and Social Psychology Bulletin, 17: Bruns, V., Holland, D. V., Shepherd, D., & Wiklund, J The role of human capital in loan officers decision policies. Entrepreneurship: Theory & Practice, 32: Brush, C. G., Carter, N. M., Gatewood, E. J., Greene, P. G., & Hart, M. M Growth-oriented women entrepreneurs and their businesses: A global research perspective. Northampton, MA: Elgar. Choi, Y. R., & Shepherd, D. A Entrepreneurs decisions to exploit opportunities. Journal of Management, 30: Deci, E. L., & Ryan R. M The what and why of goal pursuits: Human needs and the self-determination of behavior. Psychological Inquiry, 11: DeTienne, D., Shepherd, D. A., & DeCastro, J. O The fallacy of only the strong survive : The effects of Human capital and extrinsic motivation on the persistence decisions of under-performing firms. Journal of Business Venturing, 23:

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